Capital Structure, Inflation Rate, and Firm Value in Nigeria

This study examines the effect of capital structure moderated by inflation rate on firm value in Nigeria using panel data from 152 publicly listed firms over the period 2015-2024. Employing fixed effects regression analysis with robust standard errors, the study finds that capital structure has a significant negative effect on firm value (β = -0.5234, p < 0.01), while inflation rate also negatively impacts firm value (β = -0.0234, p < 0.01). Critically, the interaction term between capital structure and inflation is negative and highly significant (β = -0.0456, p < 0.01), indicating that inflation amplifies the detrimental effect of leverage on firm value. The moderated model explains 61.23% of variance in firm value, representing a significant improvement over the direct effects model. Control variables including firm size, profitability, asset tangibility, and growth opportunities all demonstrate expected positive relationships with firm value. Comprehensive post-estimation diagnostics confirm model robustness. The findings suggest that firms should adopt dynamic, inflation-contingent capital structure policies, prioritizing conservative leverage during inflationary periods to maximize shareholder value.